Opportunity for Reset
As the COVID-19 pandemic begins to recede, Vermont is only beginning to tally the scope of the damage. In the wake of the wreckage, many institutions are suffering from losses made far greater due to years or decades of neglect, even as the stock market boomed and unemployment nearly vanished.
The COVID-19 pandemic has now given the state the opportunity for a reset—a chance to look afresh at programs and structures that have suffered from short-term fixes. The list is exhausting to consider:
- Higher Education Funding. Vermont’s state college system was teetering on the brink of failure before the pandemic due to decades of state underfunding. With the resignation this week of the state chancellor and at least one college president, and a gaping $25 million deficit that apparently can’t be filled with federal funds, the state faces an urgent challenge to save a system that provides higher-education opportunities to many economically-challenged young people.
- Child Care. Pre-COVID-19, Vermont lacked adequate care for many children who needed it. The care that was available was unaffordable for vast swaths of families; and many employees were not paid wages anywhere close to that of equivalent K-12 teachers. The state has cobbled together a temporary program to keep facilities alive while their doors are closed, but the pandemic has revealed a system in dire need of repair.
- Pension Liability. Vermont had unfunded retired teacher and state employee liabilities of $4.5 billion before the pandemic. With no stress test in place to forecast the robustness of the system, no one knows how it will weather the unprecedented reduction in state revenues. Before March, the legislature had shown little interest in restructuring the system.
- IT Infrastructure. Thousands of Vermonters have suffered untold hardships as they waited for a 30-year-old computer system to process their unemployment claims. State employees have responded admirably in getting checks out the door, but the cost of inaccurate and untimely claims that had to be manually processed remains to be calculated.
- Roads and Bridges. Memories of the state’s dilapidated roads may have faded under the Stay Home Order, but Vermonters will soon receive jarring reminders of how badly the state has underfunded its transportation system.
- Broadband. As we wrote last week, 20,000 Vermont homes lack access to adequate broadband. Thousands of Vermont’s children have had virtually no access to education for weeks, which may stretch into months, and families are virtually cut off from the world of commerce and communication.
And the list continues—housing, education finance, lake cleanup and home health care funding all face long-term structural problems that have eluded legislative solutions.
Vermont has demonstrated that it has leaders who can take charge in a crisis. Gov. Scott and his administration have received uniformly high marks for their resolve, openness, and science-based approach. Sen. President Tim Ashe has led the Senate with a clear focus and direction. There are numerous other capable leaders in the wings who no doubt could perform equally well.
What Vermont needs now is leadership for the post-crisis phase—individuals who will begin to rebuild the state’s damaged institutions in a durable and sustainable way.
Vermont has received $1.25 billion to rebuild in the wake of COVID-19. By comparison, the entire general fund budget for FY 2020 is $1.6 billion. The challenge for lawmakers will be not to treat the federal money like lottery winnings and spend it on short-term fixes. After all, one-third of lottery winners end up in bankruptcy.
* For another perspective on this issue, see Tim Volk’s excellent commentary that was published Wednesday in Vermontbiz.com.
Vermont Legislative Update Quick Links
Governor Scott held an optimistic press conference on Friday where he outlined the next phase of back-to-work orders, formally labeled New Work Safe Additions to the Stay Home, Stay Safe Order.
Effective May 4, outdoor businesses, construction, manufacturing and distribution operations may resume with a maximum of 10 employees at any location if employees can maintain a 6-foot distance from others. Beginning May 11, worker limits will be lifted for these sectors, but employers are advised to deploy as few workers as necessary at each site. A safety plan is required for businesses with more than 10 employees at any physical location. The Agency of Commerce and Community Development has provided a link to a VOSHA training that would fulfill the requirement. In addition to certifying that this training has been completed, companies must designate a point person who is responsible for ensuring adherence to safety guidelines at each work site.
In moving towards expanded return-to-work orders, Governor Scott’s Restart VT Action Team volunteer task force is meeting with various business sectors. The group works with the administration’s internal Restart VT team, comprising the Department of Health, ACCD, Department of Public Safety, and other cabinet members. The team then feeds its recommendations to the governor for his final orders and amendments.
Governor Scott advised reporters that he anticipates new guidance for Vermont’s outdoor recreation industry next Friday. As long as Vermont’s COVID-19 caseload continues to decline, the spigot will continue to slowly open.
Appropriations committees review budget process
The legislative appropriations committees received updates this week from the Joint Fiscal Office on the upcoming budget bill process and timeline. The JFO provided a document outlining the line item changes needed to adjust the budget and address the revenue shortfall.
In the House Committee on Appropriations, Chief Fiscal Officer Steve Klein said it is likely that a combination of the increase in Federal Medical Assistance, reduced Medicaid spending, and Coronavirus Relief Funding may prevent the need to dip into reserves to balance the budget with the second FY 2020 Budget Adjustment Act (BAA2). Klein said the legislature only has six weeks to get BAA2 and a three-month “Skinny Start” budget passed and signed by the governor. House Appropriations Chair Kitty Toll, D-Danville, said her committee would start concurrently working on the bills next week.
The FY2020 “Skinny Start” budget will appropriate funds for the first quarter of 2021. The remaining budget will be completed in August and September after the official revenue forecast is released in August. JFO recommends tying the Skinny Start budget bill to the actual FY 2020 appropriations authorized through the BAA1.
JFO expects most line items will be up to 25 percent less than appropriations, but some line items will require a larger deviance: teacher pensions, Vermont Student Assistance Corporation, Vermont State Colleges, and several agencies. JFO also recommends including language establishing emergency appropriations that can be adjusted as needed by the Emergency Board in the first quarter. Finally, the Pay Act will need to be included in the first FY 2021 budget act because those payments need to be out by July 1.
Early estimates show big revenue losses
Tom Kavet, the legislature’s chief outside economist, provided legislative money committees this week with his latest revenue estimates for FY 2020 and FY 2021. The FY 2020 estimate now represents an official forecast which can be used for budget adjustment. It shows revenue losses of about $144 million.
For FY 2021, Kavet estimates a staggering $427 million in losses. Kavet called the 2021 figures “order of magnitude” for their imprecision, and he emphasized the difficulty of modeling the economy during a pandemic. Fundamentally, he said, this is an epidemiological event, with many economic repercussions. Unlike a regular recession, economist have to rely on epidemiological models to gain some perspective, and those models can vary by an order of ten. Additionally, key statistics such as unemployment numbers will be very inaccurate. On the plus side, utilities are providing useful data on electricity usage which can shed light on sector activities once they are given the green light to operate.
Kavet said the state has benefitted from a disproportionate share of federal money, including $1 billion from the Paycheck Protection Program. Because businesses do not have to show harm, Kavet said the monies may not necessarily have gone to very small businesses or to those businesses that need it most. Those funds offer a lot of capacity but will not rectify early layoffs. There will be sectors that see very long-lasting impacts.
Kavet and the administration’s economist Tom Carr expect to produce a preliminary consensus forecast for FY 2021 by May 15th.
Agency proposes universal broadband program
The Public Service Department presented a draft legislative proposal to the Senate Finance Committee on Tuesday that would create universal broadband access in Vermont. The cost of the project would range from $85 to $293 million, and the department has suggested that the state use federal CARES Act funding to pay for it. It is unclear if that suggestion has the backing of Gov. Phil Scott.
Clay Purvis, Director of Telecommunications for the Department of Public Service, described the Department’s proposed emergency broadband plan which would provide universal service, defined as 100/100 mbps, for all addresses that are currently not served by speeds of at least 25/3 mpbs. Under the department’s proposal, communication union districts would have decision making authority over grants within their borders. These are municipally-formed volunteer entities that have no funding and no employees.
Purvis provided the committee with a map that shows projected broadband deployment costs by town statewide.
The Department will also recommend legislation that requires utilities to provide access to middle-mile fiber, support further development of CUD’s, redirect capital money to support development of mobile wireless infrastructure to unserved areas, and streamline licensing of state lands for telecom purposes.
Panel considers tax credit for families who paid to retain child care slots
This week the Senate Education Committee reviewed family payments to currently-closed child care centers and considered creating a program that would partially reimburse them for their payments as a way to acknowledge their role in saving the sector. Under the state’s $4.3 million Child Care Stabilization Program, parents are required to pay one-half of the cost of child care while facilities are closed in order to retain their child’s slot. The state pays the other half.
Let’s Grow Kids and other child care proponents have lauded this program to shore up child care businesses during the COVID-19 emergency response. Aly Richards, CEO of Let’s Grow Kids, told the committee that without the stabilization program, Vermont could face a similar situation as other states where half of child care establishments have gone out of business. She said that COVID-19 has revealed the fragility of a private-pay system that already asks families to pay more than they can afford.
Providers testified that guidance they have received from the Department of Children and Families regarding families’ contributions was fast moving and difficult to parse. The result has been that some providers have asked parents to pay 100 percent of tuition if they could afford to in order to stay enrolled while others advised families that the state would cover 50 percent or more of their tuition. Some families made difficult decisions to unenroll their child based on that advice.
Senator Phil Baruth, D-Chittenden, said he could think of no other instance where the state has asked individuals to contribute so much so that a business sector could survive the pandemic. Parents were being asked to shoulder a disproportionate burden. He suggested a $500 flat tax credit to symbolically say thank you to those parents and acknowledge their contribution.
The committee will review draft language for the credit, including cost estimates, next week.
Committee considers early proposal to fund education
The House Ways and Means Committee discussed a preliminary proposal this week to finance education spending in FY 2021. The committee is concerned that without any action, tax rates could increase as much as 22-23 cents over last year.
Ideas on how to fill large estimated revenue gaps in trust taxes are few and far between. A proposal by Rep. Ancel, D-Calais, would set tax rates to cover additional costs over last year and then apply a per parcel tax credit to taxpayers. The known costs factored into the new tax rate include $38 million to restore the stabilization reserve, $5 million in education fund projected deficit, $74 million to fully fund voter-approved increases in school budgets for FY 2021, and a $113 million projected shortfall in non-property taxes.
The tax credit would be financed by Coronavirus Relief Fund money and would act as a workaround since allowable uses for CRF money do not include revenue replacement. Those funds are unlikely to be available for direct deposit into the education fund. Ancel said she is operating under the assumption that most taxpayers would find the projected increase a hardship.
The administration is not ready to make a recommendation yet because of uncertainty in revenue projections and allowable uses of CRF money, but says it will be ready to do so in May or June.
Committee members appeared generally agreeable to the concept, in part because it is the only one on the table, but some commented that a flat tax credit would create inequity and is too blunt of an instrument.
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